The Vet

Gold Is Just a Brick ('Active Value Investing' Book Excerpt)

What the author completely ignores is the very real and ever present counterparty risk of all paper instruments. He touches on it in respect to gold shares and ETF type instruments in gold, but ignores it for his favourite paper instruments, bonds, TIPs etc.

It is true that strong governments will try to support their "official" paper in a numerical sense when it suits them, but they also actively devalue the base fiat unit of account when times get tough. You might be able to redeem the face number of fiat units but you never get back the real value invested regardless of interest payments.

For recent examples look at Argentina and Russia, historically, check out Germany in the first half of the 20th century, and Rome a couple of thousand years ago. The US government may look to be reliable now, but so did Rome and hundreds of other governments at various times in history. The only constant historical fact is that all of them have eventually failed and their fiat currency failed with them. Gold on the other hand has always retained value.

Closer to home, Americans who bought and held Continentals and paper denominated that way certainly would have wished they had bought gold instead at the end of the war...